Rural Leisure Businesses & Heritage Venues could come under HMRC Tax on Tips Spotlight, say Saffery Champness

HMRC has recently announced that new industry-specific task forces are being set up to target tax evasion. While the first task force will target the restaurant trade in London, those in Scotland and North West England will be the next in line for investigation.

The Landed Estates and Rural Business Group at accountancy firm Saffery Champness has expressed concern about the effect this may have on estate and farm businesses that have diversified into the restaurant business by providing catering through farm shops, cafs and holiday letting complexes. Owners of heritage properties with restaurants and cafs are also an area of concern, because all restaurateurs and their staff may be vulnerable to tax investigations on a number of levels.

Andrew Arnott, a partner of Saffery Champness, explains: Because HMRC has a huge amount of data relating to businesses throughout the country, it will be able to compare the exact costs and profit margins, per meal, between different types of businesses. For instance, it will be possible to assess whether a restaurant in, say, an historic house open to the public, makes a lower margin on sales than another one in the same area and that fact alone can lead to a business being targeted for a tax investigation.

Saffery Champness points out that restaurants and cafs are cash-based businesses as customers often pay and tip waiters in cash. HMRC will want to be sure that all such transactions are properly recorded, so restaurant businesses of every size should take a good look at their record-keeping now. In an investigation the taxman will probably want to see cheque stubs, till rolls, sales and takings records and a raft of other documentation to ensure that transactions are taxed and recorded correctly.

Andrew Arnott says, Tips are a particular source of vulnerability both for the business and for any staff employed. A restaurant must have a manager, who is responsible for sharing out tips amongst the restaurant staff, waiters and cooking staff. A second part of the role involves administering PAYE on the total amount of tips which are deemed to constitute taxable supplementary remuneration. However, individual waiters often handle their cash tips personally in which case they would have to declare the amount received in tips over the course of the tax year as supplementary earnings on their tax return.

Andrew Arnott continues: Historically, tips have often been under-declared for tax purposes and HMRC is clearly toughening its stance on cash payments, so both restaurants and waiters can find themselves under the spotlight. The stress of a tax investigation can be hugely disruptive for a business or even in your personal life , especially given that, unlike in any other area of law, tax investigations are often approached on a guilty until proven innocent basis.

Owners and managers of landed estates and farms which have any form of restaurant or caf business should ensure that financial records are accurate and up to date, seeking expert advice if necessary.

Saffery Champness has 58 UK partners and more than 400 staff, with nine offices in the UK (including Scottish offices in Edinburgh and Inverness) and one each in Guernsey and Geneva. The firm celebrated its 150th anniversary in 2005, after the firm was founded in 1855 by Joseph John Saffery. For further information about the Company, please visit www.saffery.com

Saffery Champness has worldwide associations in over 100 countries through its membership of the global association Nexia international.

The Landed Estates Group is headed by a team of 15 partners who advise landowners, agricultural and rural businesses on financial and tax matters, particularly capital taxes and VAT.